New research from De Montfort University has highlighted that 23 per cent of commercial property debt to banks in the UK is in negative equity.
The 2012 Commercial Property Lending Market report highlighted that banks now have £217 billion of debt secured in commercial property in the country, but 23 per cent of this (£45 billion) now has a loan-to-value (LTV) ratio of 110 per cent, meaning that borrowers are actually in negative equity.
This means that their property is worth less than the debt they have to pay on it. It is therefore not surprising that banks are committing less and less to commercial properties, with there having been a 7.7 per cent drop in the number of loans approved to the sector in 2012, compared to the previous year.
It was not all bad news however, as the amount of debt which has a LTV ratio of 70 per cent or less had actually seen a rise from 50 per cent to 53 per cent from 2011 to 2012.
Bill Maxted, academic consultant in the Leicester Business School and one of the authors of the report, said: "During 2012, lending organisations reported generally that the weak UK economy and increasing incidences or tenant failures, particularly in the retail and hospitality sectors, was having a detrimental impact on borrowers' cash flows and the capital value of commercial property."
The report further saw that whilst investors are keen to keep their gaze on central London, the case is not the same for other regions around the UK. Nearly £45.5 billion in loans will have to be repaid this year, whilst over 70 per cent of all commercial property loans in the UK will have to be fully paid in the next five years.
The study looked at loans held by 87 lending teams from 78 banks.